Dated: December 27, 2005
Executive Vice President & Head of Branch
RE: LEGAL OPINION REGARDING MORTGAGE AND DOCUMENTATION STATUS
We refer to your letter dated 05.12.2005 on the above subject. We have perused the contents of your letter in light of the queries posed in your letter.
Query No. 1: Whether mortgaged deed covering only funded facility will protect interest of the Bank or other legal documentation has to be constructed to cover non-funded facility also?
The property mortgaged with the Bank covering only the funded facility does not secure the non-funded facility. Bank should take necessary security for non funded facility which could turn into contingent liability or even actual liability. Depending on your clients record and history, Bank should obtain mortgage for the entire loan amount.
Query No. 2: Whether the interest of Bank is secured if disbursement is made against mortgage of a portion of the total land offered as security covering a portion of the loan amount and execution of mortgage deed of the balance land covering the balance loan amount pursuant to such disbursement due to non mutation of the land.
Mutation is not a precondition for creation of mortgage. As such Bank may obtain mortgage of the entire land coupled with an Undertaking from the mortgagor to complete the mutation within a specified period.
Query No. 03: Whether mortgage deed can be created covering the enhanced loan amount only instead of creating further charge on the entire loan amount?
“Further Charge” is a Charge within the meaning of section 100 of the Transfer of Property Act, 1882 on the property already mortgaged with the Bank.
Until amendment of the Transfer of Property Act, 1882 by the Transfer of Property (Amendment) Act, 2004 and amendment of the Registration Act, 1908 by the Registration (Amendment) Act, 2004, “Further Charge” on mortgaged property used to be created through execution of a Memorandum of Deposit of Title-Deeds coupled with a Deed of Agreement for Further Charge, i.e. by creating a mortgage by deposit of title-deeds under section 59 of the Transfer of Property Act, 1882 for the entire loan amount on condition (as stated in the Agreement for Further Charge) that the registered mortgage already created would not be redeemed prior to the redemption of the mortgage created by deposit of title-deeds.
The aforesaid amendments have in effect abolished the mortgage by deposit of title-deeds. In such situation the only option remained open for creation of “Further Charge” is by executing and registering a “Deed of Further Charge” under section 100 of the Transfer of Property Act, 1882.
Now the question is what will be the stamp duty for registration of a “Deed of Further Charge”?
Pursuant to the provision of section 3 of the Stamp Act, 1899 every instrument mentioned in Schedule-1 of the said Act is chargeable with duty of the amount indicated in the said Schedule-1. There are various other deeds/instruments, which are not mentioned in Schedule-1 of the Stamp Act, 1899. As such there cannot be any doubt that a deed or instrument which is not mentioned in Schedule-1 of the Stamp Act, 1899 is not chargeable with stamp duty.
Article 32 of the Schedule-1 of the Stamp Act, 1899 provides for the stamp duty on those Instruments of Further Charge, which impose further charge on the mortgaged property when the original mortgage is one of the description referred to in clause (a) and (b) of Article 40(1) of Schedule-1.
Mortgage in favour of a bank or financial institution is chargeable with stamp duty under Article 40(2) of Schedule-1. As such a Deed of Further Charge on the property mortgaged for which stamp duty has been paid under Article 40(2) of Schedule-1 does not come within the purview of Article 32 of Schedule-1 of the Stamp Act, 1899. Therefore, in our opinion, pursuant to the provision of section 3 of the Stamp Act, 1899 no stamp duty is attracted.
But the office of the Inspector General of Registrar (IGR) has already clarified that since a Deed of Further Charge on the property mortgaged for which stamp duty has been paid under Article 40(2) of Schedule-1 does not come within the purview of Article 32 of the Schedule-1 of the Stamp Act, 1899, stamp duty is attracted under Article 40(2) of Schedule-1 for the entire loan amount. We respectfully differ with this view for the reason that a “Charge” is created under section 100 of the Transfer of Property Act, 1882 which clearly provides that a “Charge” is not a “Mortgage” and as such a “Charge” cannot be chargeable with stamp duty as indicated in Article 40(2) of Schedule-1.
In any case unless and until the clarification already given by the office of the IGR is withdrawn or modified, “Deed of Further Charge” cannot be registered without payment of stamp duty as directed by the office of the IGR.
However, if the Bank can issue fresh Sanction Letter for the enhanced loan amount, Bank may obtain another mortgage for the enhanced amount instead of the entire loan amount. Bank may also take up the matter with the office of the IGR.
Query No. 04: Whether Bank may create mortgage for enhanced amount only on newly offered security.
We think that our opinion under Q3 do cover this particular query of the Bank.
Query No. 05: Whether an undated cheque of a CD/CC(H) Account can be accepted covering the facility granted.
There is no legal bar in obtaining any undated cheque covering the facility granted. However, Bank should obtain a letter of authorisation to insert the date on the cheque as and when necessary.
However, it is advisable to take the cheques from current account.
If you have any query, do not hesitate to contact us.
The Lawyers & Jurists
M.L.Hotel Tower Ltd, 208, Shahid Syed Nazrul Islam Sarani,
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